Global trade means supporting losers, not protecting them at any cost

Two international developments that opened up free trade were very important for Ireland – the establishment of the EU Single Market in 1993, and the Uruguay round of customs tariff cuts, also in the early 1990s.

Freer access to European and global markets have contributed hugely to Irish economic success.

Lower tariff barriers have changed how industrial production is organised around the globe. Rather than having factories that centre all manufacturing stages on the one site, and supply the local economy, many industrial plants now feed into a complex supply chain catering for the world market.

Big firms generally locate the manufacture of subcomponents in those countries which are most competitive at producing them. Ireland is now a key staging post in the international production of pharmaceuticals, IT equipment and medical devices. This globalised production model has dramatically cut costs, and consumers around the world have benefited from cheaper goods.

Chinese green imports

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By the 1990s, as the Irish economy exploited the new opportunities in open markets and took its place on global supply chains, economic growth began to lift off

However, globalisation has also brought a downside. Some firms closed and some workers lost jobs. Where this transition process was handled well, with appropriate support and training, the losses were small, with most people getting new jobs as economies prospered. But that wasn’t always the case.

In Ireland, many firms producing traditional products closed in the 1970s and 1980s. Many of those who lost their jobs at that time either emigrated or remained unemployed, and the State’s response at that time did not avert such hardship.

But by the 1990s, as the Irish economy exploited the new opportunities in open markets and took its place on global supply chains, economic growth began to lift off. Over the Celtic Tiger years, although some traditional jobs were still being lost, the costs for those affected were minimised both through a booming economy, with plentiful replacement jobs, and by appropriate individual supports from the state. On average, the new jobs were much better paid, leaving the economy better off.

However, in some countries the losers were not so lucky. The US car industry, faced with foreign competition, especially from Japan, moved production from traditional locations such as Detroit to southern states, where costs and wages were lower. Government support was inadequate to cushion the blow for those who lost out, and Detroit and other rust-belt cities were left devastated.

German carmakers, on the other hand, outsourced the lower-value elements of production, typically assembly, to cheaper countries such as Poland and Slovakia, but kept higher-value activities, such as electronics, at home. This reduced the cost of production, made German manufacturers more competitive, and retained higher-paid manufacturing jobs.

Substantial pushback

There has been substantial pushback in the US from free trade in the last few years, and more recently also in the EU. Ursula von der Leyen’s speech to the European Parliament last month signalled a disappointing policy direction.

She indicated that the EU would take action to deal with what it sees as unfair subsidising of the car market in China, as well as what was labelled as unfair “subsidisation” of the production of solar panels. Neither of these goods are of strategic or military significance. The pushback against imports from China is instead aimed at protecting EU industry, rather than helping it to adjust.

Chinese manufacturers of electric cars have targeted the cheaper end of the market whereas EU producers sought to introduce electric vehicles in the luxury car market

Firms in China have invested very heavily in developing these industries, albeit with significant government support. They have substantial excess capacity and, if they are to recover that investment, they will have to export heavily at competitive prices.

While Chinese imports pose challenges for some EU manufacturers, this is very good for EU consumers. Chinese manufacturers of electric cars have targeted the cheaper end of the market whereas EU producers sought to introduce electric vehicles in the luxury car market.

[ Martin Wolf: Waging war on global trade will be costly ]

[ Global trade reversal ‘not good for Ireland’ ]

As both electric cars and solar panels are of major importance in decarbonising our economies, cheaper Chinese products can significantly hasten the greening of the EU. The enhanced competition will force EU producers to adapt more rapidly and play their role in the green transition.

Seeking to protect jobs in firms that have failed to adapt to the changing world will have a significant cost for consumers and will slow the decarbonisation process.

There is, however, a genuine concern when any country has a monopoly in the supply of key raw materials. It is a danger that China controls supply of some of the key metals needed for the green revolution.

That, rather than cheaper Chinese manufactures, is the real worry. We have seen with Russian gas that dependence on one country for crucial inputs carries strategic risks. That’s why it’s important to invest in diversified sources of supply of essential raw materials.